A San Clemente developer who promised doctors big profits from surgical centers was ordered last week to pay $3.8 million for defrauding a Fullerton psychologist.

The developer, Bruce Bennett Wallace, filed bankruptcy last year to escape nearly $27 million in debts, including an earlier judgment in favor of the psychologist, Robert Kraszewski.

Neither Wallace nor the doctors who sued him are talking. However, court papers describe a business that looked lucrative but proved to be a financial black hole.

Dozens of doctors gave Wallace millions of dollars to build centers in Yorba Linda, Costa Mesa and York, Penn. Two of those centers never opened. The third went bust after 13 months.

And at least two of the doctor-investors went bankrupt, too.

One of them is Henry Bikhazi.

In late 2007, Wallace approached Bikhazi, then 70, with an idea he promised would let the Newport Beach ear, nose and throat specialist “retire on an island of his choice.”

The idea was instantly attractive to physicians like Bikhazi: physician-owned surgery centers where doctors controlled the schedule, doctors selected the equipment and doctors shared the facility fee. No hospital – no middleman.

An accompanying document projected that a $4,000 unit would return an average of $17,952 per year over the first five years.

Bikhazi paid $12,500 cash and contributed an elaborate model of the Napoleonic-era British frigate HMS Alfred, worth $50,000, for the lobby of a planned surgical center in Costa Mesa.

But Bikhazi will not be retiring to an island anytime soon. He declared bankruptcy in November after learning that his $12,500 cash investment had saddled him with $5 million in debt.

He is now suing Wallace for fraud. He declined to talk with the Register.

DOCUMENTS ALLEGE DIVERSION

Wallace’s troubles reached a critical point in late 2008 when he was trying to build three surgical centers.

His Yorba Linda project was at a standstill.

Kraszewski, the Fullerton psychologist, had hired Wallace in 2006 to develop a surgery center on land Kraszewski owned near Placentia Linda Hospital.

By mid-2008, according to a lawsuit Kraszewski later filed against Wallace, the developer had spent more than $1.3 million that Kraszewski had paid him. But Wallace had stopped making payments on the loan that was supporting the project. As a result, Kraszewski lost his land to foreclosure. Those actions formed the basis for the fraud judgment against Wallace last week.

Kraszewski alleged in the lawsuit that Wallace had diverted some of his money to another project.

That project was Wallace’s flagship Costa Mesa project, Renaissance Surgical Arts at Newport Harbor. The contractor had stopped work there in summer 2008 when its bills went unpaid.

It’s unclear how much, if any, of Kraszewski’s money went to Newport Harbor. But court records document a second fund diversion.

It involved Wallace’s third center in York, Penn. He told doctors there that even though construction had not yet begun, the time was right to order expensive medical equipment. A local lender, Susquehanna Commercial Finance, loaned nearly $3 million for the equipment, sight unseen.

That money did not pay for medical equipment in York, according to court records.

Some went for bonuses to people working on the York project. Another $100,000 went to buy Wallace a BMW.

And $1 million apparently went to the Costa Mesa project.

On Dec. 31, 2008, the same day the $3 million Susquehanna loan closed, Colombo Construction Co. sued Renaissance Surgical Arts at Newport Harbor for $2.5 million in unpaid construction bills.

In emails between Colombo and Wallace’s company that were filed by Susquehanna’s lawyers in federal court in Pennsylvania, Colombo executives cited promises by Wallace of $1 million “from the Penn project that would be available for Newport.”

Renaissance eventually settled with Colombo, and work in Costa Mesa resumed.

But the York project foundered. In September 2009, nine months after funding the equipment loan, Susquehanna asked for proof the equipment had been delivered. There was none.

In April 2010, the attorney for the York physician-investors, Elizabeth Goldstein, wrote a letter accusing Wallace of fraud over the equipment loan. She also declared the York project “an utter failure.”

The Goldstein letter surfaced in the Susquehanna lawsuit nearly a year after it was written. It quickly drove Wallace to settle for $3 million. Wallace’s bankruptcy wiped out that settlement. Susquehanna is now seeking an order in bankruptcy court to enforce it.

EVERY PENNY

Wallace opened the Costa Mesa center in September 2010, aided by equipment loans from Wells Fargo Equipment Finance. Wells Fargo demanded and got personal guarantees from several investors in the project.

Bikhazi, the ear, nose and throat specialist, was one of the guarantors. His copies of the guarantees, filed in court, each bore a handwritten notation, “maximum exposure $30,000 per Bruce Wallace.”

The Costa Mesa center defaulted on its equipment leases in January 2011. Wells Fargo sued, demanding the guarantors make good.

On Oct. 25, 2011, Bikhazi learned that his “maximum exposure” was not $30,000 as he had believed. It was for every penny the center owed Wells Fargo: $5.4 million.

In late 2012 Bikhazi filed personal bankruptcy. He also sued Wallace for fraud. Wallace has denied wrongdoing. Both actions are pending.

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